India to oppose cap on current a/c balances-source

NEW DELHI, Oct 21 (BestGrowthStock) – India will oppose any plans by
the Group of 20 leading economies to impose caps on individual
countries’ current account balances as a solution to tensions
over currency policies, a finance ministry source said on
Thursday.

The G20 finance ministers and central bankers meet in South
Korea on Friday and Saturday to try and reach an agreement on how
to deal with trade and growth imbalances ahead of a meeting of
their leaders in November.

One proposal is for G20 members to commit themselves to a cap
on current account balances, which officials reckon would be a
palatable solution to strains caused by massive investment flows
away from low-growth, low-return rich nations to faster growing
emerging economies.

“I do believe that this has to be looked at more
fundamentally and by artificially linking the current account
deficits levels to the GDP, you are merely skimming the surface,”
the official, with direct knowledge of G20 deliberations, said.

“I am not sure that this will be supported by very many
emerging economies”, the official said.

Pushing through any agreement is not going to be easy in a
group whose current account balances range from a 5 percent
deficit in the case of Turkey to Saudi Arabia’s 7 percent
surplus.

India, Asia’s third largest economy, is expected to grow at
8.5 percent for the current fiscal that ends in March 2011. Its
current account deficit, nearly 3 percent of GDP at a record
$13.7 billion in June and the worst in three decades, is a sign
of rampant demand in that vibrant economy.

It also makes India more welcoming to funds that rich nations
have pumped into their struggling economies and which now are
being diverted into emerging markets in search of higher returns.

“We believe that trade flows should not be restricted..”, the
Indian official said.

India however believes the G20 is the right forum for
discussions on currencies and the impact of quantitative easing
policies in the developed economies.

“Ours is also more of a domestic growth story but with QE
battles likely to be played out in developed economies, it
complicates monetary policymaking for us at a time when inflation
is still high.

“So we are open to any discussion or solution to this vexed
issue and believe this is the right platform for that.”

India to oppose cap on current a/c balances-source